23 May Taxation of unemployment benefits
Q. In February, my employment position changed and I took a severance package. I will be applying for unemployment at the end of May. My accountant recommended, if I qualify, that I have as much tax taken out as possible. What is the maximum amount of taxes I can have deducted?
— Changing income
A. It’s smart to plan ahead when it comes to taxes, no matter what your source of income.
You may have federal income tax withheld from your unemployment compensation on a voluntary basis, said Cynthia Fusillo, a certified public accountant with Lassus Wherley in New Providence.
In order to do so, you must complete and submit IRS form W-4V, Voluntary Withholding Request, Fusillo said.
However, there is only one option if you do choose to have federal tax withheld: 10 percent.
“Many folks don’t realize that their unemployment income is, in fact, federally taxable and are surprised when they file their returns, so your accountant is correct in that you should request federal withholding,” Fusillo said.
Fusillo said if you believe your actual liability on this income will exceed 10 percent, you can supplement the amount by making quarterly estimated tax payments.
“If this is your situation you probably wouldn’t have to make a quarterly payment until the third quarter due date of Sept. 15, 2016 since you haven’t started collecting yet,” she said.
You should speak to your accountant about this because there are two different bases on which to calculate and pay quarterly estimates, and he or she will know your particular situation and can advise you accordingly, Fusillo said.
Once you start withholding, it will remain in force until you complete and submit a new form W-4V and check the box to stop withholding, she said.
Fusillo notes that the income is not taxable on your New Jersey return.
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This post was first published in May 2016.NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.